Quick Reference Guide to Debt Relief Options

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There are so many debt relief options out there: Debt Settlement, Debt Management, and even Bankruptcy.   Follow this guideline to help you navigate through the debt maze!

Debt Settlement

Debt settlement is an aggressive approach to pay your creditors a fraction of what you actually owe.   This amount will be considered as payment in full, but will appear on your credit report as “settled in full”.   You can obviously settle this debt yourself, but most people choose to go with a debt settlement company because they simply don’t have the time to deal with their creditors.   You can expect to reach a settlement with your creditors for about 40-50% of your debt (this will all depend on your creditor).   You will pay into an escrow account (savings account) and the debt settlement company will settle each creditor one by one.

Pros: You can expect a substantial savings in a debt settlement program.   Some creditors might even go as low as 25%.

Cons: Your credit will be severely damaged.     A debt settlement program only works for delinquent accounts, and there are possibilities of lawsuits.   Any debt forgiven greater than $600 will be reported to the IRS.

The Ideal Candidate: The ideal candidate will have some source of readily available income (friend, family, etc) to settle with the creditors in case of a lawsuit.   The typical length of the program should not be greater than 36 months.   People who plan to make large financial purchases should NOT enroll in a debt settlement plan.

Debt Management Program

A debt management plan will often include working with a credit counselor.   A credit counselor will closely examine your income & expenses to make sure you can afford a DMP plan comfortably every month. They will give you all the tools to teach you how to spend money wisely. Credit counselors have “pre-negotiated” interest rates with different creditors ranging from 0-11%.   Upon enrolling a debt management plan, all your accounts will be closed. Although some creditors may allow 1 card open for emergency purposes, don’t be surprised if the creditor closes the account.   You will pay a single monthly payment to the credit counselor, and they will be responsible for disbursing your payments to the creditors.   It’s important to check your statements every month to make sure your creditors are receiving your payment.

Pros:   A debt management plan has less impact on your credit compared to a debt settlement plan or bankruptcy.   Payments are reduced compared to making regular minimum payments.   No prepayment penalties.   Structured plan to get out of debt under 5 years.   All late fees/penalties waived.

Cons: Credit counselor is responsible for making payments to your creditors.   Your accounts will be closed, and no future credit cards can be opened while on the program.

The Ideal Candidate: The ideal candidate for this program is someone who is credit conscience.   They can also afford to make their monthly minimum payments.   This program is also for people who have fallen behind a few months and need help catching up with their payments.


There are two major types of bankruptcy that a consumer will file.   Chapter 7 Bankruptcy can be seen as a liquidation of assets.   A consumer can potentially wipe out their debt under this program.   A Chapter 13 bankruptcy will involve paying a trustee over a certain time period to repay some or the whole amount of the debt.

Pros:   If you are able to qualify for chapter 7, you will get a fresh start.   It will stop all collection calls and prevent future lawsuits.

Cons:   Must be below state median income to file for chapter 7.   Bankruptcy will last on your credit for 7-10 years.   However, this doesn’t mean that you’re credit will be ruined for the entire time.

The Ideal Candidate: The ideal candidate for this program is someone who cannot afford to enroll in a debt settlement program or debt management plan.   They have overwhelming amounts of debt and creditors are threatening to sue them.

If you have any questions, feel free to ask me a question!


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